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August 2017

In the 2015 legislative session, the Connecticut General Assembly authorized the creation of a new type of investment account – the Achieving a Better Life Experience (ABLE) account.  An ABLE account allows family members to save funds for the care of a disabled individual without jeopardizing the individual’s eligibility for government programs.

Federal law allows a state, a state agency or a state-authorized entity to maintain ABLE accounts. The states that currently have ABLE Accounts are Alabama, Alaska, Washington D.C., Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington. 

You can compare the requirements and characteristics of each state’s ABLE account at www.ablenrc.org . 

Connecticut does not presently have an ABLE account.  The Connecticut State Treasurer announced in October, 2017 that the State of Connecticut will partner with the State of Oregon to create its ABLE Account. 

ABLE accounts operate in much the same manner as 529 College Savings Plans. You can invest in another state’s ABLE account just like you can invest in another state’s 529 Plan. Any person may contribute to an ABLE account on behalf of the eligible individual.

Who Is Eligible for an ABLE Account?

To be eligible as a beneficiary of an ABLE account, the beneficiary must have a disability that occurred before age 26 and be either entitled to benefits under the Supplemental Security Income (SSI) program or under the Social Security disability, retirement, and survivors program or provide a qualified disability certification from the disabled individual or his or her parents or guardian.

The qualified disability certification must state that:

  • the individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; or
  • the individual is blind consistent with the Social Security definition of blindness; and
  • the blindness or disability occurred before the individual reached age 26. 

The certification must include a copy of the diagnosis describing the individual’s functional impairments and signed by a qualified physician.

Contribution Limits

You can contribute up to the annual gift tax exclusion amount per year (in 2018, $15,000) to each ABLE account. Contributions must be in cash and must come from non-retirement funds. Ultimately, the total amount contributed to any ABLE account over time must not exceed state-established limits for 529 accounts. Connecticut legislation establishes an overall maximum account balance limit of $300,000.

Distributions from the Account

A designated beneficiary can take distributions for qualified disability expenses. Qualified disability expenses are any expenses related to the eligible individual’s disability. The ABLE Act specifies that qualified expenses include the following:

  • education
  • housing
  • transportation
  • employment training and support
  • assistive technology and personal support services
  • health
  • prevention and wellness
  • financial management and administrative services
  • legal fees
  • expenses for oversight and monitoring
  • funeral and burial expenses
  •  basic living expenses

Medicaid Eligibility

Distributions from ABLE accounts are not considered income.  Investments held in ABLE accounts are considered exempt assets for purposes of Medicaid eligibility. Note that contributions to and distributions from an ABLE account are also disregarded for purposes of the Temporary Family Assistance, Low-Income Home Energy Assistance Program, any other federally funded assistance program, as well as need-based institutional aid grants offered by state colleges and universities. 

SSI Eligibility

SSI will disregard the first $100,000 in an ABLE account. If and when the amount in an account exceeds $100,000, SSI will consider the excess to represent resources and will suspend the individual’s SSI benefit until the account is reduced to $100,000 or less. Distributions that are used for housing expenses will be treated by SSI analogously to all other housing costs that are paid by other sources.  Trustees of Third-Party Supplemental Needs Trusts can contribute to ABLE accounts.

Tax Implications

Contributions to ABLE accounts qualify for the annual gift tax exclusion (in 2017, $14,000). They become completed gifts once made.  Earnings on contributions to ABLE accounts are not taxable income for either the person who made the contribution or the eligible beneficiary. 

If an eligible beneficiary’s qualified distribution expenses exceed distributions from his or her ABLE account, the distributions are not includable in his or her gross income. If distributions exceed qualified expenses, the excess incurs an additional 10% tax unless the distribution was made after the beneficiary’s death.

Without incurring income tax, the owner of an ABLE account can roll over an ABLE account into another ABLE account either for the designated beneficiary or for a qualifying member of his/her family (siblings or step-siblings).

Probate Claim

Note that following the death of a designated beneficiary and payment of any remaining qualified disability expenses, the amount remaining in an ABLE account is subject to recovery by the State of Connecticut in an amount equal to the total medical assistance paid under the Medicaid program for such individual after creating the account. Premiums paid by or on behalf of the beneficiary to a Medicaid Buy-In Program reduce the State’s claim.

If you want to consider an ABLE account investment, come to see the attorneys at Cipparone & Zaccaro, PC to confirm that it is a good option for you and your family.

We recently closed an estate that had an issue surrounding the enforceability of a lien in favor of the State of Connecticut for Medicaid payments that were made on behalf of the decedent.  The decedent spent her last days in a nursing home.  Before she died, she applied for Medicaid to absorb the cost of her stay in the nursing home.  The Connecticut Department of Social Services approved her Medicaid application and paid her nursing home expenses. She died owning nothing.  

Sometime after her death, her eldest son told us that he received a letter from an attorney in another state telling him that his deceased mother’s brother died leaving a modest estate.  The letter indicated that his uncle died before his mother and the only beneficiaries of the uncle’s estate were his surviving siblings. That meant that his mother’s estate stood to inherit from his uncle’s estate.  

Would the State of Connecticut make a claim for medical assistance paid to his mother?  The beneficiaries of his mother’s estate were the eldest son and his two younger brothers.  The youngest brother was developmentally disabled and living in a group home in another state.  The state provided public benefits for his care.

Federal law says that any adjustment or recovery of any medical assistance correctly paid on behalf of an individual by a state may be made only at a time when the individual has no surviving child who is under age 21 or who is blind or permanently and totally disabled.  In addition, the Connecticut Department of Social Services Uniform Policy Manual (hereinafter “UPM”) states that “[t]he Department recovers funds for Medicaid benefits correctly paid from the estate of an institutionalized individual regardless of the individual’s age … [and] [r]ecovery is only … if the individual has no surviving child who is under age 21 or who is either blind or disabled.”  

We opened his mother’s estate in the probate court.  During the estate administration process, the State of Connecticut – through its collection arm, the Department of Administrative Services (hereinafter “DAS”) – filed a claim asking the court to order that the money that the mother received from her late brother, be distributed to the State of Connecticut.  The lien was in the approximate amount of $176,000.00!  Near the end of the estate administration process, we submitted a Financial Report in which we asked the court to deny the State’s claim pursuant to the federal statute and the Connecticut UPM. We also provided the probate court with a copy of the youngest brother’s medical record to substantiate his developmental disability.

After DAS reviewed the law and the medical records, they withdrew their claim for reimbursement of the $176,000.00.  Thereafter, the court approved the Financial Report and ordered the distribution of the mother’s estate to her three sons.  As you can imagine, our client was very happy with the outcome.

Every estate requires a deep analysis of the facts and the law because no two estates are alike.  If the Connecticut Department of Administrative Services makes a claim in an estate in which you are the Executor - or a beneficiary - seek an experienced probate lawyer who will do a thorough analysis of the claim.  Do not assume that the State will recover estate assets in every case.  The money you spend to determine whether you may prevail against the State could be well worth the inheritance you ultimately receive.  Please don’t hesitate to call the probate attorneys at Cipparone & Zaccaro, PC.  We’d be happy to discuss your unique situation and help you determine whether you might inherit from a loved one’s estate.